What Constitutes ‘Affordable Housing’?

There are a variety of definitions  given to affordable housing, typically, it can be defined as low to middle income households spending no more than 30% of their gross income on rent or mortgage costs and other essential household costs. This is generally accepted standard definition of affordable housing based around income, however appropriate tenure (assisted rental, shared equity etc) is as important as price point. When referring to ‘affordable housing’, in an New Zealand context, it can also mean housing that is delivered at or below the KiwiBuild price points, or assisted housing products delivered by Community Housing Providers (CHPs) to households that are not eligible for social housing or KiwiBuild and cannot afford more expensive market priced housing. There appears then, to be a broader and flexible definition of affordable housing than solely focusing on 30% of income spent on housing cost.

Considering a broader definition of affordable housing is critical because the intermediate housing market defined as “private renter households with at least one person in paid employment, unable to affordably purchase a house at the lower quartile house sale price for the local authority area at standard bank lending conditions” (Mitchel, 2019) is growing at an increasingly rapid pace.

This group of people are becoming increasingly ‘stressed’. “Stressed” households are those paying more than 30% of their gross household income to service rent or mortgage expenses, and those paying more than 50% are “extremely stressed” (Mitchel, 2019). The growing intermediate housing market and number of stressed renters and owners, is therefore putting pressure on the social and community housing stock, and contributing greatly to the risk of gentrification in regeneration areas. Gentrification is a consequence of existing residents having to move out of an area, for reasons of affordability. 

As an example, Porirua’s housing market demonstrates all the signs of a market under affordability pressure, as a result of housing costs (rent and house prices) increasing faster than household incomes (Mitchell, 2016). Rising rents are affecting the ability of households to access affordable and appropriate housing.  In Eastern Porirua, 78% of renters have insufficient income to affordably pay the median market rent and the house price they could affordably buy at is 57% of the median market price.The market is providing little (3%) new stock below the market median or at affordable prices (Ibid.).

Retained affordable housing means that it remains affordable for the duration of the house and is not lost to the open market once affordability restrictions are removed after a set period. It refers also to the continuous recycling of investment into affordable housing from the sale of shared equity products, for example. 

Affordable and assisted housing models often rely on trade-offs with land value or similar indirect subsidy or payments. For the government to have an active role in delivering affordable housing, there has to be a demonstrable ‘public benefit’ from their investment, when considering a total value assessment. If a long term view is taken, the benefits and value created by investing in a range of affordable housing products far outweighs the investment into social housing only. The benefits from shared equity ownership, cooperative housing, cohousing and community land trust are plentiful, and well documented. 

Perhaps what is understood less, is how initiatives like community-led homes revolving funds and low interest loans enable the recycling of investment, and ensure that affordability is retained over time. More thinking needed here.