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Defining and measuring housing affordability in the private rented sector

Posted on 17 October 2016 by Lydia Marshall, Research Director
Tags: housing, renting

There is widespread concern about a ‘crisis’ in the affordability of housing in the UK, and particular concern about rising rents in the private rented sector, which now accounts for 19% of households in England. However, there is currently little consensus about what is actually meant by ‘affordability’ in relation to housing. One problem with the conversation around affordability is the lack of a clear, agreed definition of what is ‘affordable’, and to whom.

The paper I presented at the European Network for Housing Research conference this summer addressed this problem using data from the latest Family Resources Survey to examine the state of housing affordability in the private rented sector. I proposed a new residual income approach to defining and measuring housing affordability, based on the Minimum Income Standard. Using this measure, it was possible to identify the current extent of the unaffordability crisis in the UK, and to assess the merits of the proposed solution of a ‘Living Rent’, which has been argued for by, amongst others, the Mayor of London.

What is a residual income approach to defining housing affordability?

A residual income approach defines housing as affordable if a household is able to afford to meet their other basic or essential needs after paying for their housing.


What is Minimum Income Standard (MIS)?

Updated annually since 2008, MIS details the income that different households need in order to reach a minimum socially acceptable standard of living in the UK today.

MIS is widely respected, and is used to calculate the UK Living Wage. Others have already recognised the merits of using MIS as a measure of housing affordability.


Put simply, our approach says that housing is affordable to a given household if they can afford to pay for their housing and have enough left over to cover what is needed to reach the minimum income standard for their household type. However, some households have such limited incomes so that they would be below this standard even if they were to pay no housing costs. We therefore set about designing a measure of housing affordability that takes into account whether households are below the minimum income standard because of their high housing costs rather than because they have a low income.

What is unaffordable housing?

We define housing as unaffordable if a household has “high” housing costs and what is left is insufficient for the household to reach the minimum income standard. High housing costs are defined differently for households with and without work:

For households with someone in work …

… housing costs are high when the household is paying more than the average proportion (for households with below median income[1]) of their net income on housing

For households with no one in work …

… housing costs are high when the housing benefit the household receives is more than £5 a week less than their housing costs, meaning that non-housing benefits need to be used to cover housing costs


One in Five Households in the Private Rented Sector has Unaffordable Housing

The analysis I presented revealed that at least one in five households in the private rented sector has unaffordable housing – which means that they have high housing costs and have insufficient income left over to afford a minimum acceptable standard of living after paying their rent. This includes:

 Lydia Housing Blog1

Households with children are particularly likely to have a housing affordability problem: 27% of privately renting households with children in London, and 30% of these same households outside of London have both high housing costs and residual incomes below the minimum income standard.

In London, single working age adults without children are also at greater risk of having an affordability problem. A quarter of single working age adults living on their own in the private rented sector in London have high housing costs and residual incomes below the minimum income standard, compared to just one in ten couples without children in the capital, and less than one in five single adults outside of London.

From a Living Wage to a Living Rent?

This preliminary analysis shows the potential for a measure of housing affordability that takes into account both the proportion of income a household spends on housing, and their ability to afford a minimum, decent standard of living after paying for that housing. This new measure could be used for a variety of purposes beyond indicating the extent of the housing affordability problem, including assessing the (potential) impact of different policies. For example, the paper I presented at the ENHR conference looked at what impact a proposed “Living Rent” model, which would cap private rents at 30% of median local income, could have on the housing affordability problem in the PRS. Such a Living Rent would lift almost 57,000 households across the UK out of their affordability problem, and would mean that approximately 33,000 extra households would be able to afford a minimum acceptable standard of living.

Our analysis, then, indicates the scale of the housing affordability “problem” for private renters in the UK, but also reflects the complex nature of this problem. Policy needs not only to address problems off affordability in the PRS but also wider problems in the housing market. A Living Rent, for example, is not the only way in which these problems could be solved. House building, increased security of tenure and a cultural change from houses as investments to houses as homes are also needed.



This paper was based on ongoing analysis being undertaken by Lydia Marshall (NatCen) and Matt Padley (Centre for Research in Social Policy). The analysis arose out of the “A Minimum Income Standard for London” programme of work, funded by Trust for London. Acknowledgements also go to the Housing Studies Association, for awarding Lydia Marshall a bursary to present this paper at the ENHR 2016 conference.

A version of this blog was first published by the Housing Studies Association


[1] This median is calculated separately for households in London and for households in the rest of the UK.

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