How affordable does “affordable” rent need to be?

To be classified as “affordable”, the rent that landlords charge must be no more than 80% of local market rate. But, a 20% discount on market rate may not be enough for some households. Indeed, there is a difference between rent that is labelled affordable and rent that is ‘genuinely affordable’. 

A general rule of thumb is that tenants should not spend more than 30% of their household income on rent. The chart below shows how much renters are paying as a % of household income in each region of the UK.

According to this data (sourced from the ONS and Zoopla), the market rate is aligned with average income in Scotland and Northern Ireland, only. That means there will be a demand for more affordable rented accommodation in every other region of the UK.

The table above shows how much market rates must be discounted to achieve rates that are no more than 30% of average incomes in each region of the UK. It is clear that ‘affordable’ properties for rent must be available with more than the minimum 20% discount in the East, South East (excluding London) and South West. In the East of England, an additional 9% discount would be required. In the South East, an additional 18% and an additional 11% in the South West. 

Policy experts and housing charities have expressed concern over this. Charlie Trew of Shelter and John Perry of the Chartered Institute for Housing highlight that while affordable rent was initially aimed at tenants in work who could sustain higher rents, in practice, tenants moving into affordable rent properties resemble those who would typically require social housing. 

The issue is said to be concentrated in urban areas, where the government has published a more pressing need for affordable housing. Taking cue from the data above to narrow the focus of this article to Southern England, in which roughly 40% of the UK population lives, we can list the largest towns and cities in Southern England (the East of England, South East and South West) as Bournemouth, Brighton, Bristol, Plymouth, Portsmouth, Reading, Southampton and Swindon (note: due to their proximity, some cities form conjoining metropolitan areas that include many more inhabitants than the cities alone. Outside of Greater London, the Southampton-Portsmouth metropolitan area is one of the UK’s largest urban areas by population with 1,500,000 inhabitants. Other large areas include Brighton-Worthing-Littlehampton and Bournemouth-Poole with 1,200,000 million inhabitants combined). 

Using data from plumplot.co.uk and the ONS, the table below shows how much market rates must be discounted to achieve rates that are no more than 30% of average incomes in each of the aforementioned cities.

Naturally, the average income in each city will vary from neighbourhood to neighbourhood. Bristol Council noted that, in 2024, the range of household incomes in areas of the city is £42,400. While outside the scope of this article, it would be interesting to see how many households in each area need affordable housing, and at what discount. Without a more detailed analysis, one may not yet believe that the average household income in Bristol, for example, is representative of the entire market and its need for affordable housing.

Investors may use this information to investigate residential rent markets in more detail. But, beware! This is not investment advice. The data may be inaccurate, as may be the inferences drawn. Please do not rely on any information in this article when making your own investment decisions or financial commitments.