Affordable housing in Wales

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Affordable housing in Wales

Does more of less really mean more?

Wales, alongside the other British nations, is facing a housing crisis. This has been caused and perpetuated by a number of factors, but the ongoing under-delivery of new homes lies at the heart of the problem. More recently, this has been compounded by higher interest rates, increased construction costs and greater regulatory costs. The impacts of the housing crisis are far ranging: including homelessness affecting those worst affected, a detrimental impact on health and wellbeing affecting those without access to good quality housing that meets their needs, and undermined social and economic inclusion for those that are forced to pay a disproportionate amount of their income on housing costs.
 
To provide some context on the affordability challenges being faced, Figure 1 shows the rate at which median house prices have increased over the last few decades. The median house price in Wales was £195,000 in 2023, which represents a 51.2% increase since 2013 and 150.0% since 2003. Against this setting, the median affordability ratio (house price to workplace-based earnings) has increased by 12.5% since 2013 and by 47.5% since 2003[1]. This underlines the extent to which house prices have increased at a faster rate than earnings, thereby excluding a large proportion of the population from the housing market. Increases in interest rates in recent years have served to exacerbate this unaffordability by increasing monthly repayment sums for many households.
  
Figure 1 Change in median / lower quartile house price / affordability ratio

Source: March 2024 house price to workplace-based earnings ratio  

 
The private rental market is also increasingly inaccessible, with research undertaken by The Bureau of Investigative Journalism finding that 99% of properties for rent on the private market are unaffordable for renters reliant on housing benefits. This is partly because whilst rental values have increased, the Local Housing Allowance has remained static since April 2020. Rental values have also increased at a faster pace than average incomes, excluding more households from the private rental market[2].
 
The consequence of this is that homelessness has been on the rise for some time, with StatsWales data reporting a year-on-year rise in the number of emergency bed spaces needed (+39.1% from 2015-16 to 2019-20[3]).
 
To address this, a ‘No-one left out’ approach was adopted during the Covid-19 pandemic. This intervention expanded the need for local authorities to provide temporary accommodation for all residents, rather than just those in ‘priority groups’. The intervention has been successful in increasing the provision of temporary accommodation for those previously not identified as being a ‘priority’. As of December 2023, there were 5,481 households in temporary accommodation - this represents a 135% increase in the since the intervention was introduced in 2019-20. The contribution of the intervention in alleviating homelessness is clear, though concerns have been raised in respect of the additional costs for local authorities associated with finding, maintaining and servicing buildings to use for temporary accommodation.
  
Figure 2 Number of households in temporary accommodation in Wales

Source: StatsWales: Households accommodation temporarily by accommodation type & household type (post 2015-16)

  
These figures depict a housing market that is increasingly precarious for renters and buyers and is consequently increasing the number of residents that local authorities are seeking to rehome. Welsh Government recognises the severity of the situation and has responded by placing the delivery of affordable housing (low carbon social rent homes in particular) at the forefront of their housing strategy.
 
As will be demonstrated in this Insight Focus, Welsh Government has an admirable ambition to facilitate the delivery of affordable housing and support those most in need. However, the target to deliver 20,000 low carbon social rent homes during this five year term from 2021 to 2026 is unlikely to be met, and the key contributor to the housing crisis, i.e., a shortage of housing, remains.
 
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Affordable housing delivery in Wales

Defining affordable housing
Technical Advice Note 2 defines affordable housing as “housing where there are secure mechanisms in place to ensure that it is accessible to both those who cannot afford market housing, both on first and for subsequent occupiers[4].” This definition is limited in scope and improves access to housing at just one level: to those in greatest need (defined in terms of income). By contrast, the policy definitions in England and Scotland also provide varied routes to home ownership at more levels, such as young working professional households that are excluded from the housing market.
 
Table 1 Affordable housing definition by country
 
 
Tenure
 
Welsh
definition (PPW)
 
English
definition (NPPF)
 
Scottish
definition (NPF4)
 
Social rented housing (provided by RSLs / local authorities)
      
 
Intermediate housing (where prices/rents are above social rent values, but below market housing values)
      
 
Shared home ownership
      
 
Sourced by relevant equity loans / shared equity
      
 
Rent to Buy
      
 
Starter homes
      
 
Low-cost housing without subsidy
      

 
Source: Planning Policy Wales, National Planning Policy Framework, National Planning Framework 2

  
Establishing the need for affordable housing  
The planning system in Wales is plan-led with, Future Wales the National Plan 2040, representing the top tier in the development plan framework. Future Wales was adopted in February 2021 and it holds statutory status, meaning Local Development Plans (LDPs) must be prepared in accordance with it.
 
Policy 7 of Future Wales relates to the delivery of affordable housing and the supporting text sets out the need for 3,500 (48% of all housing) affordable homes and 3,900 market homes (52%) to be delivered per year over the five year period from 2019-20 to 2023-24. This need was identified in the Central Estimates which are derived from household and population projections.
  
The Central Estimate for market housing is based solely on household projections which are trend based. However, in assessing the need for affordable housing, Welsh Government has applied a policy-on approach to help address the historic under-delivery of affordable housing. As fundamentally different approaches are adopted in identifying the need for market and affordable housing, it is inappropriate to compare them. As a result, it is Lichfields’ view that it is unsound to conclude that affordable housing accounts for 48% of  housing demand, as is stated on page 72 of Future Wales.
 
Lichfields is also concerned that presenting this figure as a proportion of all housing need diverts attention from the need for an absolute increase in delivery of both affordable and market housing. The focus should be on increasing the total stock of housing not simply the proportion of affordable housing against market housing.
 
In terms of the type of affordable housing to be delivered, the supporting text states:
 
The Welsh Government is committed to increasing the delivery of affordable housing, with a focus on social housing, in the areas where it is needed and will use its funding, land, planning and housing policies to drive delivery.
 
Although this is not a specific policy requirement, it underlines the intention of Welsh Government to focus principally on the delivery of affordable housing, namely social rental properties (despite shared equity and shared home ownership also falling under the definition of affordable housing in TAN2: Planning & Affordable Housing).
 
The supporting text continues “the estimates of market and affordable housing need should inform the housing requirements set out in Strategic and Local Development Plans” but recognises that “it is expected the housing requirements will differ from the estimates of housing need.”
 
It is unclear how the need for 48% affordable housing identified in Future Wales will translate into emerging LDPs, or whether this requirement is remotely deliverable in the context of viability considerations. As LDPs are brought forward, it is apparent that there are variations in their proposed affordable housing policy requirements and in terms of how Welsh Government has responded to the housing requirements. Whilst Future Wales establishes an expectation for local authorities to consider the market and affordable housing need identified at the national level, this strategic measure does not provide housebuilders with the tools to overcome viability and deliverability challenges at the local level.
 
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Delivery of affordable housing in Wales

Housing delivery in Wales
The rate of housing delivery in Wales has slowed significantly over the last twenty years with the number of dwellings completed in 2023-24 being 42.7% lower than in 2003-04 (see Figure 3). Completion rates for affordable housing only extend back to 2008-09, but Figure 5 shows that the rate of affordable housing delivery has increased since this point in time (by 51.9%, whereas total housing delivery declined by 18.8% over the same period)[5].
  
Figure 3 Total housing completions in Wales from 2000-01 to 2023-24

Source: StatsWales: New dwellings completed by period and tenure

 
StatsWales and Welsh Government publications presents affordable housing provided per annum as the total number of affordable houses that are delivered. However, analysing affordable housing provision by provider or S106 contributions reveals that over the period from 2020-2023, new builds have accounted for just 61.8% of net additional affordable housing, with the remaining 38.2% comprising acquisitions – this is shown in Figure 4. Whilst it is normal for acquisitions to comprise a form of affordable provision, the way that this data is presented by Welsh Government is somewhat misleading as publications indicate that affordable housing delivery accounts for almost half of all new build houses delivered, though in fact, these figures include acquisitions. This approach therefore changes the tenure of existing dwellings but does not contribute to increasing the overall housing stock.
 
Figure 4 Affordable housing provision and by acquisition

Source: StatsWales: New dwellings completed by period and tenure & Provision of affordable housing through planning obligations and on exception sites by authority, measure and planning type

Figure 5 shows the proportion that affordable housing (new build only) has accounted for completions. It shows that affordable housing increasingly accounts for a higher proportion of all completions, but that this remains below the 48% need established in Future Wales. The exception to this is in 2020-21 where affordable housing completions accounted for 46.3% of all completions – this change was driven by volume housebuilders being harder hit by the impacts of Covid-19.
   
Figure 5 Total and affordable housing completions from 2008-09 to 2022-23

Source: StatsWales: New dwellings completed by period and tenure & Provision of affordable housing through planning obligations and on exception sites by authority, measure and planning type

Considering these completion figures in the context of the need established in Future Wales (noting Lichfields’ concerns in the different approaches in identifying affordable and market housing need at paragraph 2.4), Figure 6 shows the extent to which affordable housing delivery levels remain below the identified need. Whilst the rate of affordable housing delivery has fluctuated, it has been relatively consistent and the average rate of delivery over the four years has been 54.6% lower than the need for 3,500 affordable homes per annum identified in Future Wales. By contrast, deducting affordable housing delivery from total indicates that market housing delivery rates have been 41.3% below the need identified in Future Wales over the four-year period.
 
This highlights the extent of the under-delivery of housing across tenures and raises questions surrounding the success of the policy approach introduced by Welsh Government to increase affordable housing delivery. In terms of delivery against their target for 20,000 low carbon social rent homes, 3,823 affordable homes were delivered from 2021-2023 – a shortfall of 61.8% to date (data confirming whether these were low carbon homes is not available).
  
Figure 6 Total and affordable need estimated by Central Estimates in Future Wales against actual delivery rates

Source: StatsWales New dwellings completed by period and tenure 2023 & Future Wales 2040

Figure 7 shows total housing delivery by provider. It shows that the number of dwellings delivered by LPAs from 2000-01 to 2022-23 has increased in line with overall delivery rates, but that they account for a very low proportion of this figure. Considering average delivery rates since 2008-09 (i.e., the earliest point that StatsWales provides data on affordable housing completion figures), our analysis shows that:
 
  1. Registered Social Landlord (RSLs) have delivered 56.5% of affordable houses;
     
  2. Private enterprises have delivered 41.4% of affordable houses; and,
     
  3. Local authorities have delivered 2.2% of all affordable houses.
 
This degree of variation shows that RSLs contribute the greatest level of affordable housing, but also underlines the contribution of private enterprises in delivering affordable housing. In the light of this and against the context of market constraints and lower values that are discussed later in this piece, it is evident that increasing the requirement of affordable housing delivery as proportion of overall housing would not necessarily address the shortage of affordable housing. In this context, increasing the rate of overall housing delivery rather than focusing on affordable housing as a proportion of market housing would:
 
  1. Enable private enterprises to increase their delivery of affordable housing; and,
     
  2. Address the key contributor to the housing crisis: a shortage of housing.

 

Figure 7 Housing delivery – total and by provider – from 2001-01 to 2022-23

Source: StatsWales: New dwellings completed by period and tenure & Provision of affordable housing through planning obligations and on exception sites by authority, measure and planning type

 
 
Comparing housing delivery across the UK
The above analysis shows that the rate of affordable housing delivery in Wales is lower than market housing and, than the need identified in Future Wales. To show the true extent the under-delivery of housing in Wales, we have sought to compare net additional delivery rates with those in England and Scotland.
 
This is a helpful exercise as comparisons cannot be drawn in respect of total delivery rates because of the very different size of the populations, and because of differences in how data is recorded. StatsWales data shows dwelling completions and demolitions, but it does not record change of uses or conversions whereas English Live Table data shows net additional dwellings and data from Scotland shows the total dwelling stock and total completions, enabling calculation of net additional dwellings. We note that data on demolitions was not recorded in Wales in 2019/20 due to Covid-19 and so completions are taken as a proxy for net additional in that year.
 
Figure 8 shows that housing delivery as a proportion of the existing housing stock has consistently been considerably lower in Wales than in England and Scotland. Whilst direct comparisons of the net additional affordable dwellings cannot be drawn because of how data is presented, it is clear that overall housing delivery (and therefore likely affordable housing delivery) has lagged behind that of other parts of the UK. This point is not made to draw direct comparisons, but to query whether the approach to tackling the housing crisis and increasing the delivery of all types of housing, is working effectively.
  
Figure 8 Recorded completions (Wales) and Net additional (England & Scotland) total dwellings as proportion of relevanthousing stocks between 2011-12 and 2021-22

Source: StatsWales: New dwellings completed by period and tenure, Live Tables 100 & 122 and ScotlandGovernment Housing statistics: Stock by tenure & Quarterly housing statistics June 2024

 
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Barriers to affordable housing delivery

This section sets out planning and market circumstances that affect delivery rates. The delivery models for affordable housing delivery vary depending on the provider – where local authorities and RSLs deliver affordable housing, they are able to take a view on providing land that they do not have to make a return on. By contrast, volume housebuilders have more limited margins for returns and so the higher costs created by other policy requirements (which create barriers for market housing too) further limits their ability to provide affordable housing in a manner which enables them to make commercial returns.
 
Barriers to housing delivery in Wales

Plan-led process

The nature of the plan-led system in Wales makes obtaining planning permission for sites that are not allocated in the LDP a difficult process. This is problematic for housing delivery as so many LDPs in Wales are time expired (59.1%) and there are continuous delays in progressing with new LDPs.
 
As new LDPs emerge, as does a new challenge. Whilst housing requirements in the last round of LDPs were set at a reasonable level, completion levels were low due to the fact that many sites were found to be undeliverable and the long lead in time to delivery on site. Moving forward, housing requirements are primarily calculated using Welsh Government household formation rates with past build rates as a benchmark. This creates a cyclical process of continuing to under deliver housing in Wales and failing to appropriately address the housing crisis.
 
Lichfields recently issued a blog about the new Standard Method being proposed to assess housing targets in England. The blog includes a critique of the advantages of a stock-based approach to calculating housing need instead of traditional household projections. The perceived advantages include:
 

  1. Remains relatively simple, using national and freely-available statistics that are produced consistently for all local areas, are robust and updated regularly;
     

  2. Uses inputs that are stable over the medium to long term (including using smoothed averages where appropriate);
     

     

  3. Avoids the circularity and volatility of household projections, whereby:

 

    1. Repeated iterations of ONS population and household projections fluctuate based on trends, making it difficult to plan
       

    2. Low rates of housebuilding lead to low levels of household growth (by migration or household formation) in an area, which is then perpetuated by trend-based projections
       

       

    3. Addresses the fact that even a big uplift for acute affordability in such an area is unlikely to makes a significant impact if it is applied to a small rate of household growth (a big % uplift to a small number is still a small number).
       

       

    4. Ensures the SM genuinely 'boosts' housing supply, across all parts of the country, as per the original intention of the policy.

 
Whilst we understand that Welsh Government doesn’t simply want to follow the approach taken in England, neither should it be different for the sake of it when evidence demonstrates that we have consistently under delivered on housing over a significant period of time. The current trend-based approach to assessing open market housing needs in Wales will simply replicate previous patterns of under delivery. This methodological weakness has been recognised in England and policy makers have acted to secure more positive housing delivery outcomes.
 
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Potential for change & the Lichfields perspective

Housing is an essential human right that forms the foundation of strong communities and a competitive economy – stable, good quality housing supports the physical and mental wellbeing of residents and enables them to contribute to society. The under-delivery of housing in Wales has created an imbalance between the supply and demand of homes, resulting in higher house prices and rental costs, thereby increasing the number of people needing access to affordable housing. The severity of this crisis is recognised by Welsh Government, though this Insight Focus has concluded that the strategy to date has not increased affordable housing rates to the level needed to make a meaningful contribution to tackling the housing crisis.
 
Looking ahead, the recent election of Wales’ current First Minister, Eluned Morgan alongside a new Cabinet, presents an opportunity for Welsh Government to reconsider its approach to increasing affordable housing delivery. This opportunity is particularly prevalent in light of the outcome of the General Election in England, and the increasingly apparent misalignment in how the two Labour Parties approach increasing housing delivery, and the wider benefits of housebuilding which would contribute to the Wellbeing of Future Generations.
 
The opportunity that exists to reform the planning system is explored in detail in another Insight Focus but set out below are the key issues specific to affordable housing delivery identified in this piece:
  
  1. The assessment of housing need identified using the Central Estimates is based on an inappropriate combination of a policy-on approach to drive affordable housing delivery rates and a trend-based approach in identifying market housing need. This approach does not appropriately recognise the unmet need for housing delivery across all tenures.
     
  2. It is also inappropriate to present affordable housing as accounting for 48% of the total need in Future Wales given the failure to apply a similar policy uplift for open market housing to meet unmet need in that sector.
     
  3. Absolute affordable housing delivery is falling well behind the Welsh Government target of 20,000 new build (2021-2026).
     
  4. The affordable housing delivery figures presented by Welsh Government include both new builds and acquisitions. Whilst it is normal for market housing to be acquired and refurbished for affordable housing uses, these do not contribute to increasing the housing stock or help to address the historic under-delivery of housing. 
     
  5. Data presented on StatsWales shows the role of the private sector in delivering affordable housing, particularly in providing new dwellings. It is important that Welsh Government does not focus entirely on direct provision by Welsh Government, RSLs and local authorities, but instead recognises that role that open market plays in increasing affordable housing delivery.
     
  6. The drive to focus almost entirely on social rent provision is counter-productive. Whilst this provides accommodation for those in greatest need, it presents the greatest deliverability challenges for volume housebuilders. Given the contribution of volume housebuilders in providing affordable housing identified in this Insight Focus, this consideration should hold more weight. Broadening the definition also presents an opportunity to improve access to the housing market at varying levels, rather than just for those on the lowest incomes. This would also serve to create more balanced communities – a key placemaking consideration for Welsh Government.
     
  7. The benchmark of housing requirements against past delivery in the new rounds of LDPs will serve to exacerbate affordability issues derived from the perpetual under-delivery of housing. If Welsh Government is to continue using household projections as the starting point for identifying high level housing need in Future Wales it should adopt a consistent policy-on approach, for both open market and affordable need.
     
  8. In Lichfields’ view if Welsh Government wants to achieve a step change in housing delivery it should follow the new approach being proposed by the Labour government in England. This would be a switch to assessing housing need using a ‘Standard Method’ based on a percentage increase against existing stock with an adjustment to reflect the scale of affordability issues.
 
 
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Insight authors

Gareth Williams

Senior Director
VIEW PROFILE

Rhiannon Harrop-Griffiths

Planner
VIEW PROFILE

  
 
 
 

Footnotes

[1] March 2024 house price to workplace-based earnings ratio 
[2] https://www.voice.wales/exclusive-99-of-private-rental-homes-in-wales-unaffordable-for-people-on-housing-benefit/
[3] StatsWales: Rough Sleepers by local authority (last collected in 2019-20).
[4] Paragraph 5.1 of Technical Advice Note 2: Planning and Affordable Housing
[5] StatsWales: New dwellings completed by period and tenure

 

Disclaimer: This publication has been written in general terms and cannot be relied on to cover specific situations. We recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Lichfields accepts no duty of care or liability for any loss occasioned to any person acting or refraining from acting as a result of any material in this publication. Lichfields is the trading name of Nathaniel Lichfield & Partners Limited. Registered in England, no.2778116

 

 

 

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