Delivering across the market cycle: building for the long term

Where is housing need greatest?

The majority of the demand for sub-market homes will remain concentrated in London and the south of England. Across our projections, these two regions typically account for 70% of overall demand on average. At 26%, London’s share in terms of need, is actually a little lower than the 30% share of the SAHP currently earmarked for the capital, although our modelling does not account for the higher cost of delivering homes in London.

Flexing the balance of tenures required

Where does this leave overall affordable housing delivery? The average of our upside and downside scenarios sees 46% of sub-market homes needing to be offered as social rent at a national level, out of a range of 40% to 52%. A further 20% of households are typically priced in by affordable rent. The remaining third (34%) are able to afford an affordable home ownership product (such as discounted market sale or Shared Ownership).¹

This suggests that offering around 50% of sub-market homes as social rent (to ensure there is sufficient social housing for vulnerable households during market downturns), alongside around one-third and one-fifth as affordable home ownership and affordable rent, respectively, would be a reasonable baseline tenure mix for affordable housing delivery when planning over the first phase of the SAHP.

The accessibility of affordable home ownership products depend heavily on the wider affordability of housing (i.e. the relationship between local incomes and prices) and mortgage rates. An increase in incomes, or conversely, an increase in mortgage rates, has a considerable impact on whether households can effectively use an affordable housing product without entering into financial burden. Our modelling on affordable home ownership is based on the affordability of ongoing monthly costs and does not take into account assumptions around deposit requirements.

Affordable rent, by contrast, typically has stricter eligibility requirements and income caps, which means the effectiveness of the discount is more consistent but is available to a smaller number of households. Social rent, meanwhile, typically picks up the remaining need from the other two tenures. If affordable home ownership and affordable rent products are well-aligned with market conditions, the demand for social rent falls, and vice versa.

Other articles in this publication:

• Building at scale: how many sub-market homes should we be building to meet demand?
• Matching tenures to local needs: Varying market conditions across the North and South of England means that the delivery of new homes needs to be well-targeted.

¹ _{To calculate the mixture of tenures required, we have made the following assumptions:} 

1. _{Affordability is determined by having a sufficient income to access a product. Products are sorted by increasing discount, starting with Affordable Home Ownership tenures (Affordable Home Ownership / Discount Market Sale, First Homes, and Shared Ownership), Affordable Rent (including London Living Rent and Discount Market Rent), with residual households unable to afford any product allocated to Social Rented housing.}
2. _{Affordable Home Ownership products assume no existing equity on the part of the buyer, a discount to the median capital value in each local authority in the relevant year (of 20% for Affordable Home Ownership, 30% for First Homes, and a 25% first tranche for Shared Ownership), and a 95% LTV mortgage at 5% rates over 30 years. An income cap of £80,000 is applied to First Homes and Shared Ownership outside of London in line with policy. A cap of £90,000 applies within London.} 
3. _{Affordable Rent products assume a discount to the median rent in each local authority in 2023. London Living Rent is priced at a 30% discount with an income cap of £67,000. Affordable Rent is offered at a discount of 50% outside of London, or 60% inside London, based on evidenced discounts from the Private Registered Provider Social Housing Stock in England dataset.}